Future Financial Considerations|Essay pro

Competencies

In this project, you will demonstrate your mastery of the following competencies:

• Analyze financial and investment decisions that add value to the organization
• Analyze financing options to maximize investor value

Scenario

You chose a business during your Module Two journal assignment. Imagine you are an analyst for that business. Your business’s board of directors wants updates on the business’s financial health. Your supervisor has asked you to write a report that includes the following:

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• The business’s current financial health
• The available financial options for improving the business
• Your recommendations about which options will support the business’s financial health

Your supervisor will present your report to the business’s board of directors. The board members have different levels of knowledge about finance. You must write the report so it is easy for all board members to understand.

Directions

Create a report for your supervisor to share with the board of directors during their presentation. Use the business you chose from the Project Two Business Options List. Use Mergent Online to find the most recent quarterly financial statements for your company. Use these statements to support your analysis during the project. Use the Project Two Financial Assumptions document for descriptions of the three financial options you will evaluate. Use the Project Two Financial Analysis Report template to complete this project.

Note: All documents and resources that are needed to complete this assignment are linked in the What to Submit and Supporting Materials sections.

Specifically, you must address the following rubric criteria:

1. Financial Analysis: For this section, you will start with calculating the financial formulas listed in Part A. Use the most recent quarterly financial statements from your chosen business and the Project Two Financial Formulas worksheet.
   1. Financial Calculations: Accurately calculate financial formulas to figure out the business’s current financial health. You must calculate the following:
      1. Working capital
      2. Current ratio
      3. Debt ratio
      4. Earnings per share
      5. Price/earnings ratio
      6. Total asset turnover ratio
      7. Financial leverage
      8. Net profit margin
      9. Return on assets
      10. Return on equity
   2. Working Capital Management: Explain the impact of working capital management on the business’s operations. Provide examples to support your claims.
   3. Financing: Explain how a business finances its operations and expansion.
   4. Short-Term Financing: Explain how potential short-term financing sources could help the business raise funds for improving its financial health. Base your response on the business’s current financial information.
   5. Bond Investment: Discuss the risks and benefits of the business investing in a corporate bond. Include the necessary ethical factors, appropriate calculations, and examples to support your analysis. Use the Project Two Financial Assumptions document and the Bonds section of the Net Present Value (NPV) worksheet in the Project Two Financial Formulas workbook.
   6. Capital Equipment: Discuss the risks and benefits of the business investing in capital equipment. Include the necessary ethical factors, appropriate calculations, and examples to support your analysis. Use the Project Two Financial Assumptions document and the Equipment section of the Net Present Value (NPV) worksheet in the Project Two Financial Formulas workbook.
   7. Building: Discuss the risks and benefits of the business investing in a building. Include the necessary ethical factors, appropriate calculations, and examples to support your analysis. Use the Project Two Financial Assumptions document and the Building section of the NPV worksheet in the Project Two Financial Formulas workbook.
2. Financial Evaluation: In this section of the report, you will determine which of the three available investments are good financing options and describe the business’s likely future financial performance.
   1. Bond Investment: Determine if the bond investment is a good financing option for the business’s financial health. Use your financial analysis and other financial information to your support claims.
   2. Capital Equipment: Determine if the capital equipment investment is a good financing option for the business’s financial health. Use your financial analysis and other financial information to support your claims.
   3. Building: Determine if the building investment is a good financing option for the business’s financial health. Use your financial analysis and other financial information to support your claims.
   4. Future Financial Considerations: Describe the business’s likely future financial performance. Base your description on the business’s current financial well-being and risk levels. Use financial information to support your claims.

What to Submit

To complete this project, you must submit the following:

Financial Analysis Report
Submit your completed Project Two Financial Analysis Report.

You must also submit the Excel files for your chosen business’s balance sheet, income statement, and cash flow statement from Mergent Online.

Workbook: Project Two Financial Formulas
Use this Excel workbook to complete your calculations for the project. You should have already completed the Ratios worksheets for your Project Two Milestone assignment.

All sources should be cited according to APA style. This includes sources listed in your Project Two Financial Formulas workbook. Consult the Shapiro Library APA Style Guide for more information on citations.

5-2 Project Two Milestone: Comparison Analysis

Cole Staats

Southern New Hampshire University

FIN-320 Principles of Finance

February 5, 2023

5-2 Project Two Milestone: Comparison Analysis

Investors use organizational financial data in a variety of ways, and one of those ways is to compare the performance of the company between two comparable time periods that occurred in different years. They can determine whether the business was suitable for investment based on the information that they gathered. These investors investigate the company ratios. A ratio expresses the relationship between two quantities in a mathematical form. The ratios are important for drawing insights into the company’s performance. Calculating a ratio is a relatively simple arithmetic procedure. However, interpreting the ratios can be quite difficult. The interpretation of financial ratios, rather than the calculation of the ratios themselves, is what makes them a useful tool for investors. The systematic application of ratios to financial statements to evaluate a company’s weaknesses and strengths in addition to its historical performance and its current financial performance is what is meant by the term “ratio analysis” (Alqam, A., Ali, H. Y., & Hamshari, Y. M., 2021). The information required for ratio analysis is found in the financial statements. The financial ratios of a company can be seen as hints or indicators of significant relationships between the various factors that are used to assess the status of the company. This paper compares the financial performance of Johnson & Johnson for the three quarterly performances for the last two years .

Johnson & Johnson Fiscal Quarterly comparisons

There are different ratios investors investigate when consolidating investment information needed for investment in the company. Each ratio is categorized under liquidity, profitability, solvency, and earnings ratios. Comparing the ratios under each category revealed information critical for understanding the company’s financial standing. Table 1 shows the ratios side by side for the two periods.

Table 1

Comparison analysis

The comparison analysis can help understand the financial status of the company. Each financial ratio gives information about an aspect of the company as far as financial performance is concerned (Laitinen, 2018).

The current ratio is one liquidity ratio that shows the company’s ability to meet short-term financial obligations (Laitinen, 2018). From the calculation, the ratio increased by 0.1. this shows that the company has enough financial strength to meet its short-term financial obligation.

Working capital is another key ratio that enables one to access the capital for an organization to operate efficiently. It shows the number of assets that the company has. From the calculation, we can see that J&J working capital increased from the previous year by about $ 4000000.

Companies finance their operations using different channels, including debt. We can gain information about this debt by calculating the company’s debt ratios (Laitinen, 2018). The debt ratio of J&J dropped by 0.04 in the two years. This shows that the company’s assets increased.

The financial leverage shows the amount of support the company gets to boost its capital. The amount can increase or decrease in a year. From the calculation, the financial leverage ratio increased in 2022 from the amount in a similar period in 2021. Therefore, the calculation shows that the company’s financial leverage increased in that period.

Another source of capital is shareholder equity. The shareholders who invest in the company, such as when the company makes a profit, also earn from the investment. We can see no significant changes in the earnings per share from the calculation.

Net profit margin is another important profit ratio that investors use to determine their company’s profitability (Laitinen, 2018). From the calculation of the profit margin in the two periods, we can see that the company profits improved, as shown in the increase in the profitability margin from0.15 from 0.66.

The last critical ratio is the return on assets. The ratios show how well a company generates revenue from its assets. From the calculation, we can see that the ratio dropped in the 3rd quarter of 2022 compared to the amount achieved in a similar period in the previous year. This indicates that the company could have profited more from its assets.

Short-term financial sources that Johnson & Johnson can use

Companies rely on finances to run their operations. There are many sources that they can utilize to generate financial. However, in some instances, the company must have short-term financial sources. The following are some of the short-term sources that Johnson & Johnson can utilize.

Short-term loans

These are unsecured loans the company can borrow and commit to paying within a short period, usually one year. Many organizations use the source to fund the cash flow operation that demands daily use of cash. It is suitable because a company can make that are not paid immediately (Segal, 2022).

Asset-based lending (ABL)

This is a short-term financing method where a lender provides funds based on the value of a company’s assets, such as inventory, machinery, or accounts receivable. The assets serve as collateral for the loan, which provides security for the lender. ABL is ideal for companies with tangible assets but weak credit history and cash flow. It provides quick capital for working capital, growth opportunities, or improving financial health (Kagan, 2020). The loan amount is based on the value of assets, typically ranging from 50% to 80%. ABL has quick approval and flexibility and can be expensive compared to other financing options.

Bank Overdraft

This financial arrangement allows a company to withdraw more funds than are available in its account. It’s a short-term loan providing additional funds for unexpected expenses or supporting cash flow. The company can overdraw to a pre-agreed limit and pay interest only on what’s used (Short-term sources of funds, 2022). It’s flexible but can be expensive with high fees and interest rates.

References

Alqam, A., Ali, H. Y., & Hamshari, Y. M. (2021, January). The Relative Importance of Financial Ratios in Making Investment and Credit Decisions in Jordan. International Journal of Financial Research, 12 (2), 284-293. Retrieved February 4, 2023. https://www.researchgate.net/publication/348504551_The_Relative_Importance_of_Financial_Ratios_in_Making_Investment_and_Credit_Decisions_in_Jordan

Johnson & Johnson. (n.d.). Our Beginning. Retrieved January 13, 2023. https://ourstory.jnj.com/our-beginning

Kagan, Julia. (2020, May 15). What is Asset-Based Landing? How Loans Work, Example, and Types. Investopedia. Retrieved February 4, 2023. https://www.investopedia.com/terms/a/assetbasedlending.asp

Laitinen, E. (2018, September 4). Financial Reporting: Long-Term Change of Financial Ratios. Scientific Research. Retrieved February 4, 2023. https://www.scirp.org/journal/paperinformation.aspx?paperid=87112

Mergent Online. (n.d.). Johnson & Johnson (NYS: JNJ). February 4, 2023. https://www-mergentonline-com.ezproxy.snhu.edu/companyfinancials.php?pagetype=standardized&compnumber=4593&period=Quarters&dataarea=BS&range=5&currency=AsRep&scale=AsRep&Submit=Refresh&csrf_token_mol=90f0e5bcb8

Segal, Troy. (2022, June 22). Term Loans Definition, Types, and Common Attributes. Investopedia. Retrieved February 4, 2023. https://www.investopedia.com/terms/t/termloan.asp#:~:text=A%20short%2Dterm%20loan%2C%20usually,from%20a%20company’s%20cash%20flow.

Short-term sources of funds. (2022, May 23). What are Short-Term Sources of Funds? Accounting Tools. Retrieved February 4, 2023. https://www.accountingtools.com/articles/what-are-short-term-sources-of-funds.html